Removal of MEIS to hurt garment industry

Slowly getting back on their feet after the losses caused due to twin policies of demonetisation and roll-out of Goods and Services Tax (GST), the knitwear and garment industry is faced with yet another crisis -- the removal of the crucial Merchandise Exports from India Scheme (MEIS) by the Centre.

Withdrawal of the scheme that provides four per cent incentive to garments’ exporters in the country would mean an increase in the prices of the products which puts exporters from Tiruppur in a disadvantageous position in the highly competitive international garments’ market that is now flooded with cheaper apparels from countries like Vietnam, Sri Lanka and Bangladesh.

Apparels from the above-mentioned countries are preferred by customers in the EU and the US due to the free market access that these nations possess. India does not have free market access to the EU and the US – major buyers of garments – and this is a major problem being faced by manufacturers from Tiruppur since entry tax is levied once goods reach the destination countries.

After the introduction of GST in July 2017, the exporters are left with just the four per cent MEIS as all other incentives in the form of duty drawback, rebate on state levies, and concession on service tax were withdrawn. The twin policies had led to a seven per cent dip in the growth of the industry in 2017-2018 and the sector has begun picking up slowly only in the past few months.

“Withdrawal of MEIS would not just result in cost escalation of the products but defeat the morale of the exporters. If the customers go back once, it will be very difficult to bring them back because the international market now has plenty of options. The government blindly withdrawing the MEIS does not augur well for the multi-crore industry,” Raja M Shanmugham, President of Tiruppur Exporters’ Association (TEA), told DH.

The MEIS, according to a notice issued to the exporters by the Union Government in July, would be withdrawn with effect from August 1, 2019. Shanmugham said the MEIS was offered to exporters’ since the industry had some lacunae and withdrawing the incentive without filling the gaps is something that the government should have avoided.

N M Ravichandran, a partner of Santex Inc, said withdrawal of the incentive scheme would push the prices of the products which have been decided much in advance. “Usually, we take advance orders and agree on a particular price. If the incentive is withdrawn and if we increase the price of the product suddenly, no customer will buy it. And he is under no obligation too because there are cheaper products now available in the market,” he told DH.

Shanmugham said though the government had promised to introduce another scheme to help the industry, nothing has come so far. Industrialists say the sudden removal of MEIS would result in achieving the target of Rs 1 lakh crore business by 2020.

“Removal of MIES would result in structural damage to the garment and apparel industry that is the second-largest employer after agriculture. The industry is put into trouble continuous and loss for any individual is a loss for the country too,” Shanmugham said.